Capital markets are at the heart of a free-market system. They bring together issuers, which need capital to pay for operations and services, and investors looking for profitable investment opportunities. Most individuals and organizations have a direct or indirect stake in the capital markets, which include stock exchanges, bond markets and money markets.
Issuers issue securities to raise money. They include small businesses, global corporations and governments. Businesses may issue stocks, which represent shares and ownership interests in companies, or bonds, which are loans that require issuers to pay regular interest payments to investors. Governments also issue bonds to raise money for operations, social services and infrastructure, such as schools, roads and bridges.
Investors may buy securities directly or indirectly through mutual funds. The investment community includes individuals, pension funds, venture capitalists and governments. Stocks are usually suitable for aggressive investors, who can tolerate some market volatility in return for long-term capital appreciation, while bonds are generally suitable for conservative investors, who want capital preservation and modest regular income.
Market exchanges process orders from investors and match buyers with sellers. Stocks trade on stock exchanges, such as the New York Stock Exchange, while bonds trade on the bond markets, which are over-the-counter electronic markets operated by financial institutions around the world.
Regulators provide structure to the capital markets. They specify rules and guidelines for issuing securities and providing timely financial disclosures. The U.S. Securities and Exchange Commission is the primary enforcement agency for monitoring U.S. capital markets.
Research analysts serve as impartial reviewers of securities. They analyze published financial statements, review industry data and talk to senior company management to assess the financial health and future prospects of publicly traded companies. Analysts often make recommendations on which securities investors should buy, sell or hold.
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